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ANTITRUST, First, Fall 1994

I. Intro

A. Four Themes of Discussion1. History: How has law developed, problems in the past2. Realism: How do industries operate? How do rules work? What's motivating

the actors/goals?3. Economic Theory4. Internationalism/International Impact

B. Sherman Antitrust Act- 1890- first federal A law- civil & criminal enforcement1. §1: restraints of trade (price fixing)- JOINT behavior- conduct2. §2: monopolization- SINGLE firm behavior- single seller attempting to

monopolize- structure3. covers violations among the several states of w/foreign nations- INTERST

COMMERCE- ?: trade w/foreign nations/foreign commerce- power here = under some contention

4. US v. Standard Oil - 1911- restraint of trade case, SCt used Rule of Reason in interpreting §1- SCt read "every" in SA language to mean "unreasonable restraints"

C. Clayton Act- 1914- stricter enforcement provisions after Standard Oil- civil enforce only- to stop/undo mergers1. §2: price discrimination2. §3: exclusive dealing, tying3. §7: mergers

D. Enforcement Structure1. Department of Justice, Antitrust Division

a. SA: civil enforce: power to seek equitable relief, decrees, injunctions, may regulate an industry, require divestiture, licensingi. consent decrees- settlements- ct orders that ct can enforce only if

≠ followedii. CA §5a: gives impetus for pties to enter into consent decrees

a. judgment = prima facie evid v. future casesb. consent decree = no prima facie effect in subseq casesc. arg: gov may settle too willingly- CDs may be a sell outd. in 1974- statute enacted in wake of abuse of CD process- make

procedure more public- comment periodiii. gov can sue for TREBLE damages

b. SA: crim enforce: §1, §2 = feloniesi. sanctions increase in 1990- (S1)ii. sentencing commission- restricts Dist Ct discretion (S4-5)- forces

imposition of jail sentencesiii. w/Reagan, Bush- incr in criminal > civil A actions

c. CA: civil enforcement only- injunctions to stop/undo mergers2. Federal Trade Commission- administrative agency

a. FTC Act- unfair methods of competition through §5ai. SA enforcement through the back-door- covers same kind of behav

DoJ covers even though ≠ directly enforcing the SA

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ii. but- NO CRIMINAL ENFORCEMENT by the FTCb. CA

3. CA§4: private remedies- can get treble damages & attny fees- note 7 p. 21-29- probs of priv enforce

4. DoJ/FTC- try to cooperate in enforce- issue merger guidelines jointly (Prob = when they don't agree, eg: Microsoft)a. ?needless duplication/wasteb. ?no enforce agency needed

5. Enforcement can be politicala. often an attempt by those subject to investigations to put pressure on

agencies not to investigateb. enforce = subject to the political views of the day- pol value pressure has

had impact on devel of A

E. Economics- assumes rationality in business behavior1. Purposes

a. descriptive: of a partic situationb. predictive: how will modification change behav/actionc. normative: what shoudl we do? how can we tell if we're worse/better off?

2. Price effects output- supply & demand3. Elasticity: change in output caused by change in price- "responsiveness" of

output to pricea. very elastic- if demand changes a lot in response to change in priceb. inelastic- if demand does not change that muchc. elasticity = effected by available substitutes (more substitutes = more

elasticity)d. cross-price elasticity- change in output/amount demanded of product A

caused by change in price of product B ( if there are available substitutes)4. Average: total/# units5. Marginal: the extra cost assoc w/producing an extra unit of output6. Strategic Behavior- business decisions that firms undertake w/their rivals in

mind & based (in part) on how their rivals might react- exists when firms = interdependent/recognize each othera. commitment- irreversable decision to which 1 pty binds itself- other firms

must believe itb. threat- a decision by one pty to do something on a contingencyc. promise- something beneficial to promisor- look for enforceable promises

7. Structure --> Conduct --> Performance Paradigm: theory that there are direct links between these- once you know S, you can predict how firms will behave (conduct/performance)a. Structure

i. seller concentration- #/firms in a given marketa. Concentration Ratio (CRx)- % of share of market held by x# firmsb. Herfindahl-Hirschman Index (HHI) (p.67-8)- sum of the squares

of the market sharesii. conditions of entry- ability for new firm to enter the market &

compete

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a. entry barriers- something which prevents new entrants from entering into an industry (bar exam, patents, capital costs)- only faced by new entrants

iii. Kinds of markets that might exista. Perfectly competitive market- numerous sellers- none of whome

believe they can influence the price (price-takers)1. entry= free/easy2. perfect information3. homogeneous product- every product = the same

b. Pure monopoly- polar extreme to (#1)- single seller- has power to set the price, entry ≠ possible

c. Oligopoly- more than one seller but fewer than many- leads to strategic behavior- they're aware of each other in planning (most criticism of the SCP Paradigm)

b. Conducti. Priceii. Innovation- if there are necess links between mkt structure &

level/rate of innovation; if you need concentration for innovationiii. Non-price conduct- advertising, product differentiation strategies

(marketing), product changesiv. Cartel Theory

a. Cartel: a group of competitors that agree on price, output, product conditions to try & control an industry

b. Depends on:1. Communication/Collusion- overt (what people go to jail

for)/tacit- communication you can't see- ?: ease of tacit communication

2. Policing the cartel- expectable & predictable factor that firms will cheat

3. Punishment- need to teach offenders a lessionc. emphasizes links bet structure & conduct

v. SCP, CT- provide administrable tests, prob: easy to apply rules can be wrong

c. Performance- the normative judgment- is this good, bad, or indifferenti. Efficiency- doing the best you can with what you've got

a. allocative: allocating resources to produce the most of what we want (≠ the way businesses use the term E)

b. productive: is a firm producing a product as cheaply as it could- low cost producer

c. innovative: measurement of the rate of innovation/progressivenessii. Progressiveness

8. Econ args against Monopoliesa. Allocatively inefficient- Bork- diversion of resources to things we want

less- econ only approach to antitrust- to promote consumer welfareb. Redistribution from consumers to producers- this is something A laws

should be concerned about v. ultimately we're all consumersc. Rent seeking- producers will spend $ to get monop profits & spending $

to gain/protect monop = inefficient use of resources

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d. "X" Inefficiencies- monopolists will become productively inefficient- raising the "x" curve- & inefficiencies = a loss to society

9. Monopolies & Time 2 problem- what happens once producer increases price to monopoly price- ARGS FOR MONOPOLIESa. Monop could LOWER costs- w/economies of scale, more efficiency, less

unit costs, society could svae resourcesb. innovation- we need monops to encourage/finance innovation- incr. econ

wealth, consumer satisfaction10. Mitchel (new baker) v. Reynolds (old baker)- cov not to compete, M suing to

enforce v. R, judgment for M. ct looks at reasonableness- geogr area & length of time- args by ct to enforce:a. social security- more $ for shop upon retirementb. prevent overstocking c. fairness- should enforce Kd. (First ≠ buy these args)- what's the market? how will price be effected?e. in favor of covenants not to compete

i. creates capital asset of goodwill & enables old baker to porfit (incentive)

ii. creates a legal right that bolsters incentive to invest, work hard

II. STRUCTURE ISSUES

III. Monopoly

A. US v. Alcoa (p. 95) (2d Cir. 1945)- §2 SA, civil case- weight of case = ≈ SCt decision- decision = later approved by SCt- Hand: 90% mket share = enough to char firm as amonopolist; 60%-64%=doubtful, 33%=certainly not enough1. market= analytical device to answer the statutory ?: is there a monopoly2. factors here

a. AS- sales of virgin ingotb. AF- Alcoa's ingot used in fabricationc. Secondary ingotd. imports- ≠ controlled by Alcoae. all foreign ingot prod.

3. Hands marketsa. Alcoa's control / totalb. AS/I+AS+S = 33%c. AS+AF/I+S+AS+AF = 64% (adds AF)d. AS+AF/I+AS+AF = 90% (takes secondary out)

i. Hand accepts this fraction/accepts args @ AF, S

B. Issues in Alcoa- PRODUCT MARKET- look at both consumer &producer1. include secondary?: US v. DuPont- (SCt. 1956), p. 108- cellophane case

a. TEST to determ what's in the market- cross elasticity of demandi. looks at consumer/consumer behaviorii. substitutability- "reasonably interchangeable by consumers for the

same purposes"

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b. if you're arguing for the "monopolist"- expand market definition- Alcoa should have called the market "metals"

2. supply side substitutability- including AF- even if a competitor is not making an identical product today, it may be able to do so in the future- e.g.: Reynolds starting to sell to outsides if Alcoa jacks up pricea. ?how quick is the supply side response- Telex v. IBM (10th Cir. 1975)-

p.111- IBM "plug compatible peripherals" ≠ rel mket bec. other manufacturers could quickly & cheaply modify their peripherals into IBM plug compatible peripherals

b. geography plays a role in whether consumers/producers can switchc. Imports- I = just the amount that happens to be sold in the US- should the

I in Hand's formula be "W"- the world (would be great for Alcoa!)i. Hand: p. 101- potential imports did put a ceiling on A's prices,

nevertheless- bec. of tariffs, costs of trnasport- A = free to raise pricesii. we don't know how much room these factors give Alcoa, but it's

enough for Hand that Alcoa has the power to raise prices w/in these limits

iii. issue today: whether to include the whole world as your market- regardless of whether you can get product or not- no co. will ever have much of a market share if this = the definitiona. factors to make it too much: transport costs, time of response,

export restraintsb. pressure to think of markets as international today may be too

much pressured. how elastic is SS response- more elastic = more likely to include it in the

product market defintion

3. submarkets- new definition of the market- Brown Shoe (SCt. 1962)- TESTS:a. industry/public recognition of the subm as a separate economic entityb. product's peculiar characteristics & usesc. unique production facilitiesd. distinct customerse. distinct pricesf. sensitivty to price changes & specialized vendorsg. Telex v. IBM (10th Cir. 1975)- p.111- IBM "plug compatible peripherals"

≠ rel mket bec. other manufacturers could quickly & cheaply modify their peripherals into IBM plug compatible peripheralsi. ?:profitability- ease of changing, price plug sells forii. ?:legal barruers- does IBM have a patentiii. ?:ease of IBM change- if IBM can adapt quickly, other peripheral

makers wont even enter the market

C. Geographic Market1. legal test: p. 118: the area of effective competition in which the seller

operates & to which the purchaser can practicably turn for suppliesa. may also test supply-side responseb. speed of response/elasticity = important

D. Indirect Social/Moral effect as reason for Antitrust laws

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1. Economic arg: Hand in Alcoa- monopoly profits = irrelevant- purpose of act = broader than economics

2. Monop power "deadens initiative, discourages thrift, depresses energy" (p. 102)a. Congress ≠ condone good trusts & condemn bad ones- all monops = out b. bahavioral assumption: for economic reasons we need the constant stress

of competitionc. Post-WW2- Hand is talking @ the Amer dream/the way we want to live-

small producers "for its own sake and in spite of possible costs" (p. 104)i. prob: w/international markets- we're not sure we want to pay for this

E. Alcoa's defenses- even though Hand said there weren't any defenses & market share = enough; Hand: "monopoly may have been thrust upon it" p. 1041. Natural Monopoly- a single producer may be more efficient- NM may be an

exception(electricity- econ of scale, gov regulation)2. Superior Survivor- "superior skill, foresight and industry"

a. Hand = concerned about fairness- we urged you on w/competitive forces; it's a disincentve for innovation to sue you later

b. Hand says Alcoa ≠ the superior survivor, you could argue it was herei. if Alcoa couldn't satisfy these exceptions, who could?ii. is this whole part of the opinion a charade?

3. Changes in tasteF. Conclusions for Alcoa

1. Hand: you don't have to have done bad things to violate the SA mvmnt from structure -> conduct (no fault approach- purely structural)

2. in the end- Hand disregards the exceptions w/respect to Alcoa3. ** We've receded from the structural approach- we look more closely at

conduct now

G. CONDUCT CASES1. REFUSAL TO DEAL: Otter Tail (SCt. 1973)- §2 SA/brought by DoJ-

vertically integrated co.-- electric utility must share its transmission facilities w/smaller utilities; OT leveraged power over transmission lines to monopolize the retail level (bottleneck)-- mixture of regulation & free marketa. Refusal to Deal

i. refused to sell power wholesale ii. or to wheel poweriii. sham lawsuits to delay estab of municipal systemsiv. restrictive agreements w/potential suppliers of wholesale power

b. Test (p. 125)i. OT used its monop power to foreclose competitionii. or gain a competitive advantageiii. or destroy a competitor

c. bottleneck in prodcution/distrib of electric power- OT "Leveraged" power where they had a monopoly into pts of the market where they didn't have a monopoly (retailing)

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i. advantage ≠ bec OT = superior survivor2. ADVICE: look at Price/Cost Relationship- A-T article- influential on devel of

ct's view on preditory pricinga. Fixed Cost- set costs that ≠ vary w/outputb. Average total costs- fixed costs + variable costsc. Areeda-Turner Test (p. 133)

i. (marginal costs = too difficult to figure out)a. price > or = marginal cost = most efficient price- extra cost for

each addt'l item = exactly what customers pay1. Prob: hard to figure out2. no one keeps books this way

ii. to avoid predatory pricing, fix cost at > or = average variable costs- AVC = reasonable proxy for marginal costsa. focuses exclusively on price/cost relationshipb. ≠ look at intentc. ≠ look at compar w/rival's costs/whether costs = targetting a rivald. arg: this pricing scheme will only hurt the less efficient competitore. focuses on short-run only- fixed costs= only set in the short run-

anything can happen in the futureiii. Main prob w/pred pricing- HARM IN PP

a. in short run- low prices = good for consumerb. in long run- competitive injury: after everyone else = driven out

of the market- OT can get monop prices w/o competition- hurt consumers

3. PREDATORY/BELOW COST PRICINGa. Matsushita v. Zenith (S10) (SCt 1986)- under §1, §2 SA- §1 requires

agreement- Z alleges high prices in Japan (T1- predation), low prices in US- for later high prices in US (T2- harvest/recouping) (≠ clear what the "low" price would be)i. SCt- summ judgment for ∆ was proper- procedural posture:

a. facts in light most favorable to πb. ?:if facts = sufficient to allow a reas jury to infer pred pricing

(more likely than not)ii. test

a. evidence that tends to exclude the possibility that the alleged conspirators acted independently (S16)

b. has to make economic sense1. ct: ≠ think PP = likely/rational here- PP only rationally

plausible if seller thinks it can make back money lost & profit foregone (investment/interest) to be evena. ct: high price in Japan bears no relation to whether it's

plausible to lose $ in US- plausibility of loss in US still depends on likliehood of recouping in US in T2

b. here: T1>20 years & Amer players still had larger mket shares; low entry barriers to market; & hard to policei. real prob = the quality of Zenith's TVs!ii. ct's worry about buying the π's case = that competition

will be stifled

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2. dissent: what if co. only wants control of the market in T2- is majority's the right view of PP?a. what if companies = irrational

b. Difficulties in Applying PPi. Even if π could prove PP ii. Has to prove recoupment = likely in T2

a. what's being invested & how recoup may occur- level of pricing; goals- reputation?

c. Rose Acre Farms (7th Cir 1989) (S26)- §2(a) CA- Robinson- Patman Act (≈§2SA)- trying to get supermarket chain business by getting good deals- judgment NOV for ∆ affirmed- E: we don't protect competitorsi. DEF: market: the set of sellers to which a set of buyers can turn for

supplies at existing or slightly higher prices (p.34)ii. Easterbrook's Analysis- recoupment

a. price/cost relationship- AVC1. ct: this is difficult to apply

b. defendant's intent1. ct: even though ∆ said mean things ("you're days are

numbered"- p.28)- this = irrelevant- we don't want people to like their competitors- "stripping intent away brings the real economic questions to the fore" p. 33

c. RECOUPMENT- this is the test E accepts (difficult to prove)1. recoup becomes a filter for E- if there' no competitive harm,

intent = irrel & it's a gift to the consumer2. here- ct: there can't be recoupment

a. entry ≠ difficult (≈ Matshusita)b. prices = fallingc. other sellers doing betterd. market = unconcentrated (so unlikely RA will be able to

increase prices in T2- other firms will get the sales)3. could have recoup if seller = lowering price to discipline

compet & then raising prices- but we have no cases on thisd. Brooke Group (S304) (SCt 1993)- §2(a) CA- Robinson- Patman Act

(≈§2SA)- most recent PP case- shows difficulty of proving recoup/PP: Brown & Williamson introduced a branded cig at below cost price to punish Liggett for their generic cigs (below list price for brand name cigs)i. Liggett showed B&W was pricing below AVCii. BUT - couldn't show recoup = likely

a. "the anticompetitive minuet is most difficult to compose & perform, even for a disciplined opligopoly" (S309)

iii. Brooke Group requires π to show BOTH below cost pricing & recoupment

e. Berkey v. Eastman Kodak - (140) (2d Cir. 1979) §2SA- monop in camera & film & using monop power to effect B in camera marketi. B can't develop a new smaller camera to compete w/EK's bec. EK

won't provide B w/the size of the film- cartridge- has to wait for EK to act first- arg:a. failure to predisclose size of cartridge

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b. system selling (new camera & new film)c. refusal to deal (EK wouldn't make new film in the old format size)

ii. ct: AS A MATTER OF LAW, NO DUTY TO PREDISCLOSE (no jury could find otherwise)a. we still don't like monopolies, but ct id's tension betw use of

monop power & innovation/benefits of integration/efficiencyb. ct cuts off the predisclosure arg/problems

1. arg: prediscl could = more innovation here- more diff cameras avail for consumers (≈ arg w/computer software/new operating systems); EK could charge reas royality

2. vs: now B doesn't have to spend $ for research3. PROB: what would have to be predisclosed- hindsight prob:

EK didn't know how successful teh camera was going to be4. PROB: pre-announcing changes that stall the industry- people

wait & changes never happen on time5. this case- cuts off these probs bec no prediscl requirements-

you CAN predisclose- (ie. Microsoft might want there to be software out there to run on its new operating systems)a. ?:should prior history of predisclosure matter

iii. ct: failure to sell film could have been an Antitrust issue- but that's not what was brought (might have been what'd been brought if DoJ > B brought this case)

iv. ct: remanded issue of disclosing the photofinishing chemicals for the new process (152)- does this suggest there could be a duty sometimesa. another case: K changes temp of chem bath for film, has chem

hardeners to avoid melting of film & GAF ≠ know what the chem hardeners are- duty to predisclose?1. after Aspen- should it matter if there was a previous

relationship2. SCt: fudged on the issue of intent here3. K's args: req'ing prediscl = anti-competitive incentive; goal =

innovation > to put GAF out of business4. ?: should ct consider whether K could have brought out the

new film w/o changing the chemicalsv. what if it doesn't hurt the consumer (ie. bundling film &

photofinishing- (S37)- what is our interest in having lots of competitors- protecting the small co from the big co?

f. Aspen Skiing (SCt 1985) (S38)- §2SA- ASC cuts off Highlands from the All Aspen ticket (3/4 mountains)- violationi. Test (S42)- show ASC

a. excluding rivalsb. on basis other than efficiency

ii. Harma. diminution of consumer choiceb. Highlands showed damagesc. (price ≠ raised here)

iii. Aspen's arga. didn't want to be assoc w/H

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b. checking the process1. prob: Aspen did it elsewhere & did it here it the past- ≠ good

business justification2. conduct shows an antitrust intent (S45): Aspen: "was not

motivated by efficiency concerns & . . . was willing to sacrifice short run benefits and consumer good will in exchange for a perceived long-run impact on its smaller rival" (invest/recoup scenario)

g. Eastman Kodak v. Image Technical Services (S45) (SCt 1992)- K stops supplying parts to indep servicer of K equipment, K's motion for SJ deniedi. market: sales of K parts & K machinesii. ct: exclusionary act, ≠ justified by efficiency reasons

h. Westlaw e.g.: refusal to deal w/smaller companies who want to provde cases w/page citesi. ?:to foreclose competit/gain compet advantageii. ?:Aspen- dealing in other markets- should this matter

H. RELIEF - Alcoa (184)- once viol = found- few §2 cases are brought = lack of good remedy = why1. gov asks for:

a. dissolution/breaking up Alcoa i. ct: dissolution ≠ granted

a. national security (but the ct is talking to the DoJ here!)b. #s/facts have changed- Alcoa no longer controls secondary ingotc. Reynolds & Kaiser vertically integrated- in times of shortage, sold

only to themselves1. Hand would include this in the market bec they could sell this

on the free marketd. Market share ≠ everything in determining monop power

1. intra-industry competition- aluminum v. steel2. ?:is this changing the market def3. Hand- just doesn't like divestiure as a remedy

b. Alcanada/Alcoa tiei. ct: shareholders couldn't hold both

c. Grant-back provisions- imposed by Alcoa as condition for licensing patent/technology to competitors- competitors had to g-b licenses to new techn to Alcoa, Alcoa ≠ req'd to do the samei. ct: gets rid of g-b provisions

I. PROBLEM I1. Elements of a §2 offense- Grinnell- possess of monop power in a rel

market/willful acquis/maint of power2. DEF: Monop power: DuPont- "power to control price or exclude competition"3. Structure- possession of monop power in a relevant market- Grinnell (SCt

1966)a. Market- an analytical device

i. Defining a Relevant market

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a. buyer's perspective- DuPont- reasonable interchangeability of use (cross-price elasticity of demand)

b. seller's perspective- supply-side responsiveness- elasticity of response- Telex/IBM

c. sub-markets- Brown Shoe tests for submarkets (p.110.n.3)- group of buyers over whom sellers have particular power

d. Application: naming a market- always go on w/analysis even if you're out of court at this stage (ie. if mket = lemon juice, forget the case; if ct would accept narrower market def- gov may have a case- bottled frozen reconstituted lemon juice))

ii. Geographic Market- "area of effective competition in which the seller operates, and to which the purchaser can practicably turn for supplies" (p.118/Hecht)a. buyer's perspective- how far will buyers travelb. sellers- will they change their behaviorc. is info about foreign markets available

b. Purpose of looking at markets- DuPont- power to raise price or exclude competition i. Power over price- to figure out if sellers can raise price w/o attracting

competition (monop power)ii. Exclusionary behavior- set of competitors- definition depends what

our concerns are (ie. are we concerned w/something other than price- Brown Shoe)- patterns of trade/trade realities

iii. ***AS AN ADVOCATE- remember what you're trying to achieve in your defintion of the market- define it broadly/narrowly in a way that makes economic sense in light of the §2 allegationa. EXAM: make arguments for different definitions

c. Possession of Monopoly Power- DEF/MONOPOLY: DuPont- power to raise price or exclude competitioni. Market share- Hand's 33-66-90 rule- Alcoa/Berkey- the higher % you

have, the more certain it is you have monop powera. defense arg in prob: market share is declining/power is dissapating

ii. Beyond market share- Alcoa relief casea. conditions of entry- shelf space, trademark, low technologyb. conduct- controlling pricesc. performance- monopoly profits

1. ReaLemon- higher return on equitya. defense- 6% = an average- not RL's competitorefficiency &

econ of scale- RL could be the best firm- don't want to penalize firm for being the best

2. trademark/good will enhanced selling price- ≈ Mitchell- buying cov not to compete- here- buying monop profitsa. Alcoa - discounted relevance of evid of reas profits as evid

of monopb. here- HIGH profits

iii. make a judgment- but always go on to next stage of analysis

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4. Conduct- cts have also looked beyond structure to conduct: "willful acquisition or maintenance of that power as distingushed from growth by superior product, business acumen, or historic accident"- Grinnell (SCt 1966)a. Bookends of debate

i. Alcoa - (concern = monop power)- furthest in taking a structural approach- diff of meeting superior skills test

ii. Berkey - (concern = competitiveness)- willing to tolerate more competitive behavior by monop firm- use of monop power v. benefits flowing fr. efficiency/integrationa. historical context- lots of priv §2 litig v. "our best firms," less

concern w/gen econ interestb. In the middle- where we are now- Aspen, Image K v. Tech Servicesc. Kinds of Conduct

i. Predatory Pricing- Brown & Williamson- requires both factors, makes PP difficult to provea. Pricing below level of costs

1. B&W - stipulated the use of AVC test- this test = the gen view of the Ct/Appeals level, but the SCt has left this open (SCt seems to have said price/cost rel = important though)

2. between ATC-AVC= no cases if this = PP3. below AVC = predatory- floor4. if price > or = AVC- lawful pricing5. BUT SCT ≠ COMMITTED TO THIS TEST6. gov arg in RL case: RL trying to undercut GC- w/RL's pricing,

GC would have to price below cost/go out of business7. gov: RL targetted GC- evid: business plans, studied cost

structure- need more evid about Buffalo, but targetted GC in Philly

8. defense: efficiency = reason RL can price lower than GC- test- reqs basis other than efficiency

9. cost of goods- hard to tell bec people keep books differently- but looks like RL has higher costs & can still price above their costs & below GC's costs

10. ?:are you excluding a less efficient competitorb. Reas. prospect of recoupment

1. Rose Acre - no recoup, so could ignore other aspects2. Matshusta - no PP unless investment & interest can be recouped

in T2a. extent of investmentb. reas possib of actually recouping investment & interest-

B&Wi. ct looks for $ for $ recoup & competitive effects- are

consumers harmedii. conditions of entry- Matshusta- ease of entry = less

likely to recoupiii. *** ≠ shown by showing cross-subsidization-

Matshusta- this ≠ prove sellers will get $ back- just shows the financing of the losses

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iv. concern w/the consumer in T2v. ReaLemon- not depending on others to recoup/no

cartel; ≠ much to recoup- what they gave up in T1 = monop profits

vi. defense arg: still other sellers- can't raise prices much in T2

c. Where's the antitrust harm?- consumer injury, rivals- ∆ arg: benefits fr RL's practices

ii. Innovationa. Predisclosure- Berkey- ct gives latitude to monopolist- no prediscl,

monop gets the lead timeb. System compatability- Microsoftc. See test for refusal to deal

iii. Refusal to deal- Otter Tail, Aspen, Eastman Ka. refusal to deal must be on some basis other than efficiency (Aspen)b. LANGUAGE HERE = USEFUL IN TECH INNOVATION

CASESiv. Attempt to Monopolize

a. Proof of intent to monop: specific intent, exclusionary behave/low pricing/refusal to deal

b. A relevant market- Spectrum Sports (S48)- robust competition v. conduct that hurts competition (no viol here) (proof/market, dangerous probab of success at gaining monop, intent to monop)

c. Reasonable probability of success1. market share as a threshold: under 40%- no case; cases = betw

40%-50%2. conditions of entry3. history of market4. conduct/performance

d. Combination to monop- usu. brought under §1i. American Tobacco (SCt 1946) (176)- §2 crim case for monop/conspir

to monop tobacco industrya. monop arg used v. oligop- ?:possib of 3 firms sharing a monopb. case- show some possib of using §2c. ct- reaffirmed Alcoa, but has ?able precidential value

5. Remedies- few §2 cases are brought = lack of good remedy = whya. Dissolution- Hand = even ambivalent about this- disservice to break up an

efficient org- simpliest resolution, but probs w/efficiencyi. companies have been divested- AT&T (191-97)ii. effects stockholders, employeesiii. RL: who would get the trademark

a. compuls licensing of trademark = disincentive to building up a strong brand name

b. if forced licensing- customers wouldn't really know which was ReaLemon

c. w/RL case- Admin law judge ordered forced licensing, FTC refused to order this

b. Forms of relief less than divestiture- Knox:

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i. easier for a judge to orderii. easier for a judge to doiii. requiring pricing at AVC

a. this = what RL = doing now- would be a waste to bring the casec. conduct cases- easier to structure a remedy > structure cases

IV. Mergers

A. Clayton Act §7, 1914 amended in 1950- enforced by DoJ & FTC (213)1. Coverage/jurisdictional reach ≈ SA reach- as far as Congress's commerce

power2. Analytical structure, π must show where in:

a. any line of commerce (product market)b. any section of the country (geographic market)c. where effect may be substantially to lessen competition (competitive

effect)3. Legal history/purpose

a. Brown Shoe - first case under amended acti. concern for econ concentration & loss of local control of businessesii. plugging assets acquisitions loopholeiii. Congress's desire to cover all mergers- horiz, vertical, conglomeratesiv. stricter interp than SA- SA = unreas restraints; whole point of CA =

harder standard of legalityv. deals with PROBABILITIES > certaintiesvi. Congr wanted to stop trend to concentration before it got worsevii. no definitive qualitative test- must be functionally viewed in context

of industryb. Civil remedies (no crim penalties)- injunction prior, dissolution of

mergersc. Two enforce agencies- potential conflictsd. Hart-Scott-Rodino Act (1976) (p. 324-5)- addresses concern that gov

action would come too latei. requires pre-merger notification for certain kinds of large mergersii. give gov opport to review mergers prior to consummationiii. gov's failure to act at this stage ≠ estoppel from later proceedings (but

usu. means it wont)e. private enforcement- is possible under §7 individs injured in busin/prop

bec of unlawful merger can bring suit- California v. American Stores (S7); standing issues- (S8)- competitors ≠ absolutely barred (but if it lessens competition, why should competitors complain?)i. §7 has been used tactically in takeover battles- by targets that are

being taken over

B. HORIZONTAL MERGER- between competitors at same level of production/distribution1. US v. Philadelphia National Bank - under §7CA & §1SA (there was some ? as

to whether §7 applied to bank mergers)- (p. 220) merger betw PNB & Girard = violationa. commercial banking

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i. regulated industryii. Bank Merger Act 1960- req'd 3 fed regulators look at compet effects

of merger & ask Attorney Gen/Antitr division- all of these pties said merger was anticompetitive, but Comptroller approves merger anyway- no express immunity conferred by BMA

iii. product market- commercial bankingiv. geographic market- 4 counties- workable compromise

b. tests compet effects- ?:may substantially lessen competition-TWO-PART TEST: if the post-merger firmi. firm controls undue % share of relevant market

a. ct here says 30% = a threat, PNB & Girard = 36% (p232 n.19- 20%= enough)

ii. resulting in significant increase in concentration of firms in that marketa. here- 7%b. ** the fewer # firms you look at, the higher % you get w/any

change1. concentration of all firms went up NONE2. Brennan- looks only at the top 2 firms & gets a 33% change

c. Brennan- makes his test upiii. CHANGE from Brown Shoe- looked at a variety of factors-

functionally viewed in context of industrya. administrative reasons for new testb. prob: numerical tests are easily manipulatable- Von's Grocery

(p.219)- 7 1/2% = a viol of §7c. YOU HAVE TO HAVE AN ECONOMIC THEORY TO PREDICT

FUTURE BEHAVIORi. PNB - "competition is likely to be greatest when there are many sellers,

none of which has any significant market share" (p. 231)a. ct here=saying they can predict everything from STRUCTURE-

NARROW view of §7- ct says- we have agreement among economists that more competitors = better & we'll stay w/that1. relying on Congress to act- but this could be a cop-out- should

Cong amend the statute?b. Discredits other evidence- chooses an administrable test- proB: as

a result- are we making the wrong choices? (stopping + meregers, stopping mergers that ≠ have anti-compet effects)1. affirmative justifications (p.234)

a. increases competition w/larger NY banksi. ct: anti-competitive effects in one area ≠ justify less

competition in another area- tradeoff = difficult to figure out (beyond jud competence) (p.234) (**but see: Sylvania)

ii. FIRST- if you can prove tradeoffs- hard to see why ct wouldn't let you do it

iii. this goes around our market definitionb. following customers to the suburbsc. econ development in Philly- stimulate economy

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i. ct: this value choice = beyond judicial competenceii. prob: there are always args that mergers are good

2. rebuttal- specific defenses PNB raises at triala. testimony by bank officers = dismissed as "lay evidence"b. there were still alternatives for consumers

2. US v. General Dynamics (SCt 1974) (p.239)- §7CA- coal industry- ct says that the numbers (% market share) ≠ enough- moves to a new test & says the merger = ok here (rebuttal case to PNB): NEW TESTa. looks at concentration (#s here = w/in what Cts had found to violate

statute in the past- incr. in CR4 by 54%)b. OTHER FACTORS- cites Brown Shoe- views merger in context of the

industry- looks at everything- structure, history, probab in futurei. shift in use patterns of coalii. uses in the future- reservesiii. (OPEC oil embargo- incr demand for coal- ≠ mentioned- it hasn't

happened yet)a. in HINDSIGHT- ct fouled up- but that's the prob w/§7- requires

predictingiv. PROB: if we are to look at everything, what factors do we use for

prediction (this = the concern in PNB- data = complex & elusive)3. DoJ/FTC Guidelines for Horizontal Mergers- 1992 (S63)

a. fewer cases being brought- nothing in SCt interpreting the meaning of General Dynamics

b. bureaucratic devel through issuing guidelines- ≠ the law- just what gov believes the law means at time of issuance of guidelines

c. PNB = concerned with concentration; Guidelines = concerned w/ability to raise prices- CHANGESi. Market Definition- attempts to gauge power to change prices

a. Product market: if a small but significant non-transitory increase in price (5% for 1yr) would cause buyers to switch to a diff product1. might not have helped w/PNB- if you've clustered your

products, you're already defining the market & the test is supposed to help define the market

b. Geographic market: ≈ problems- this might not help w/every caseii. Concentration- HHI Index (sum of the squares of the market shares)

a. safe harbor- lawfulb. above 1800- gov = very interestedc. if increase in concentration > 100- gov = interestedd. creates a rebuttable presumption

d. Analysis of competitive effects of a merger- Guidelines require up to go further than concentration (is this any better > PNB at predicting future anti-comp effects? consist w/case law?)-- & cts may disagreei. Market share/concentration (DoJ Guidelines)ii. Coordinated interation- tacit collusion

a. (non-tacit collusion = viol of §1- could go to jail)b. Guidelines give 3 requirements necess for successful CI:

1. reaching terms of coordinationa. cartel theory- w/fewer firms, easier to reach agreement

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b. but concentr figures ≠ assure us market will behave non-competitively

c. w/homogeneous product- easier to reach an agreement2. detecting deviations from terms

a. again, fewer firms makes it easierb. prob: priv deals w/big customers could be difficult to

police 3. punishing such deviations

a. Liggett - how the firms might recoup- Kennedy- the most skeptical reading of cartel theory- "delicate minuet"

b. DoJ Guidelines purport to do this analysisc. prob: distinguishing punishment from competition

c. PROB: do the Guidelines slip from the ? that §7 poses: probabilities > certainties

iii. Conditions of Entry- if timely (2 yrs), likely, sufficient (assets req'd for competitive response must be available to new entrants) to counteract competitive effects (S67)a. committed entrants- new entrants that have to make substantial

investmentsb. uncommitted entrants- fewer assets committed to industryc. supply-side substitutabilityd. new entry inq = necessarily @ speculation

iv. Efficiencies

C. VERTICAL MERGER- between parties at diff levels of production/distribution1. Brown Shoe (p.251)- merger betw Brown & Kinney

a. Define product/geogr marketb. ?:Effect on competit- substantially to lessen?- need an economic theoryc. ct: major vice of VMs- forecloses indep manufacturers- B will force K to

take B shoes & no one else's (p.255)- "clog on competition" which "deprives rivals of a fair opportunity to compete"i. integration raises entry barriersii. facilitates collusioniii. (lack of consumer convenience, preserving small competitors)

d. *** p. 262: "it's competition, not competitors which the act protects"- ie. stopping high entry barriers & collusion

2. VM/non-horizontal mergers=a puzzle for A laws- hard to find how foreclosure could substantially lessen competitiona. has to be a large share of the marketb. concern for disadvantaging unintegrated retailers (but if more efficienct

VI firm will disadv other firms- os this bad?)c. more concern w/cert types of mergers- cable industry & programming

producers- refusal to deal issuei. ≠ clear how often this might occur/how anticompet it might be

d. DoJ Guidelines on VM- 1984: raising entry barriers, facilitating collusion, HHI > 1800 (substantial concentration)- but gov ≠ paying much attn to VMs

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i. TODAY- incr. in attn to VMs- gov interested in case by case egs.: perscript drug service & drug manufacturer

3. US v. Falstaff - Theories of non-horizontal mergers (Marshall concurring, p.277)a. Perceived Potential Entrant- wings theory- competitor poised to enter-

prevents firms in the market from engaging in anti-compet behav- firms inside will limit pricing so as not to attract new entry- removal of firm from fringe may have an anti-compet effecti. Test (Bankcorp (p.286)

a. target market = substantially concentrated1. CR3=96%-> market = already competitive- this = a defense2. concentration figures = a proxy to determine competitiveness-

unclear whether the ct = looking for competition or concentration

3. if ∆ args: there's competition- this = good for the gov- shows the firms ARE being constrained by fear of PE

4. BUT- if target mket isn't behaving competitively should gov then lose? (NO!- could be a monopoly!)

b. acquiring firm has characteristics, capability, econ incentive to = a PP de novo entrant

c. acquiring firm's practices/pre-merger presence IN FACT tempered oligop behav (this may gut the theory/make it imposs to prove)

ii. PROBS:a. determining the limit priceb. foregoing profits nowc. other competitors in the mket- what effect will a new competitor

have anyway?iii. ct in Falstaff thinks that this could make sense- remands bec. Dist Ct

≠ take into acct that F was a potential competitoriv. w/this theory- ≠ matter what pties themselves think, it's what a

reasonable New England Brewer might perceiveb. Actual Potential Entrant- toe-hold theory (expanding existing plant)/novo

entrant (new plant)i. this theory depends more on what F might do- ≠ depend on limit

pricingii. theory: entry by acquisition of existing firm prevents entry of a new

competitora. PROB: suggests illegality bec it would increase competition

iii. theories taken up in US v. Marine Bancorp. (SCt 1974) (p282)a. banking- lots of restrictions on entry (p.287)

1. PPE ≠ an issue here- mket = concentrated bec no one can get in (regulations)- so no one = worried about PEsa. factors that make mkt concentrated = less reason to worry

about PEb. & gov couldn't prove that firms = IN FACT restrained

behav bec of PPE (ct here makes the theory impossible to prove)

b. APE arg

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1. reasonable means to entry2. substantial likelihood of producing deconcentration (pro-

compet effects)a. ct here: can't get in, & if could, couldn't

deconcentrate/branch anywayb. CT NEVER DECIDES IF THIS = A GOOD LEGAL

THEORYc. gov's losing arg: aggregate concentration theory (may work today)

1. even though state ≠ retail geogr market2. we should view state as a whole- individ markets in which

each mkt = oligopoly (statewide oligopoly even though no statewide market)- mkts will start to become linked strategically- retaliation to lower prices in one mkt in other mkts

d. ct rejects this theory1. ≠ relevant under §7 terms- relev geogr mkt = area in which

acquired firm = actual, direct competitor (p.285)2. linked oligopoly = too speculative (although all of these args

are speculative- limit pricing)a. w/cable- doesn't matter who owns cable co in other towns

when you can't switch to it; hospitalsc. Dominant Entrant- entrenchment- firm overwhelming competitors bec has

lots of resources- Procter & Gamble- acq'd firm already had >50%/mkti. DoJ ≠ include this theory as a theory they'd look to, but P&G never

overruledd. Reciprocity- devel for conglomerate merger cases- use of buying power

where acquiring firm has leverage over other firms to get them to buy fr the company they acquirei. Consolidated Foods - ≠ overruled, but highly criticized as a substantive

matter; & ≠ in the DoJ Guidelinesii. this theory may emerge in future cases

4. Value of Falstaff, Marine, General Dynamics = ?able today5. late 70s-mid-80s- huge mergers which gov did nothing about- out of econ

theories to stop mergers- worry = @ horiz overlaps6. w/decrease in enforce under Reagan, state began enforcing- still ≠ many

litigated cases in the end

D. Problem II- (gov brought this case & ct found no §7 violation- companies can't recover legal fees when cases = brought by FTC & FTC loses- but threat of litig must be real- so when they settle- have some power to get good settlements)1. §7 Requirements: whether in any line of commerce, the effect of the merger

would be to substantially lessen competition2. Line of Commerce

a. reasonably interchangeable in use by consumers- DuPonti. GOV

a. metal ≠ clearb. can impart a tastec. plastic can be more expensive

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d. stackabilitye. shelf life might be lessf. prestige- wine = in glassg. states are limiting the use of plastic bec of environ probsh. glass may = higher prices

ii. DEFENSEa. Continental Can (1964)- (p.218)- glass & can = in the same marketb. some users do switch back & forth- spaghetti sauce, big v. small

sizes in plastic v. glassc. takes time to switch to plastic but trend- gen confrontation among

diff containers- firms eventually do switch- mayo, ketcup, beerd. so- substitutabil by consumer

b. supply-side substitutability- IBM/Telexi. Guidelines: uncommitted entrants, likely to begin supplying the

market w/in 1 yr in response to a small but signif nontransitory price increase & w/o expenditure of significant sunk costs in entry & exita. here- NEW entry = hardb. "learning curves" (S74)- can switch molds in 5-8 yrs- diff

sizes/types of containers1. BUT- if you can switch- ≠ sub-market if you're using size/char

of container as your def of market2. gov arg: maybe abil to respond ≠ as elastic as it sounds

a. commitments w/current purchasers- is there excess capacity- requirements of buyers

b. are extra molds just lying around- realities of switchingc. long term supply Ks- custom in the industry may make it

difficult for new entrantsc. submarkets (Brown Shoe)- container size, clear, by end user, stackable

i. PROB: end use ≠ a Brown Shoe factorii. DuPont - for some consumers- glass/plastic ≠ interchangeableiii. Brown Shoe lang that would help us (disting this test from prod

market tests): pecular char in uses- distinguishes the Continental Can case

d. merger guidelines (FTC/DoJ)- hypothetical monop raising price small but signif amt (5%)i. here- 10% increase

3. Possible Product Marketsa. glass containersb. all packaging

i. if this = the market- no case- gov arg for glass > all containers- apply legal tests

4. Geographic Market- §7: in any section of the countrya. Legal tests

i. PNB (p.229): area in which seller operates & to which buyer can practicably turn for supply

ii. Guidelines (S65): hypo monop increases price by SSNTA- if price incr ≠ profitable, add ext best substit until price incr IS profitable (then you have your market)

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b. Applicationi. regions/states; US; foreign- Canada/Mexico, NAFTAii. EXAM: no facts @ shipment patterns- maybe we could get more data

to show internationalization of marketsa. we have only US data- so need US marketsb. footnote: maybe there's something else we could look at-

Canada/Mex- but this = what we have herec. & as per the info @ Canada/Mex- you can count all of their

capacity, not just what gets to the US5. Competitive Effects- §7: where effect mauy be to substantially lessen

competitiona. Characterization of merger: Horizontalb. Legal test: you need a theory

i. PNB - S-C-P paradigm- test: gov must provea. undue % of market shareb. signif increase in concentration

ii. General Dynamics - ct quotes Brown Shoe- probable future- view merger functionally for probable effectsa. indicates Br Shoe is still good lawb. broader view > PNBc. also- Marine Bank- ∆ will use this arg

iii. Guidelines- HHI > 1800- but Guidelines say this = just the starting pointa. if below 1000, not interestedb. interested if HHI > 1800c. or signif increase in concentrate (> 100 pts)d. this = PNB carried forwards

iv. Factors beyond market sharea. Conditions of Entry- entry barriers

1. de novo entry- $40 mill & 24-30 months for development2. ?: is this a lot for this industry3. would = 2 yrs during which other firms can exploit consumers 4. Guidelines: timely, likely, sufficient

a. timely = w/in 2 yrs from initial planning to signif market impacti. problem= on the line- ?: if there will be signif market

impact in 2 yrsii. use facts w/case law & Guidelines

b. likely = minimum viable scale (S67)- problem talks about minimums- but is this correct- ie. if you just want to make baby food containers- min could be less- use the facts

c. sufficient = assets reqd for full competitive response must be adequately avail to new entrants

b. Trends/Concentration- §7: to stop trend towards consolidation in the industry1. BUT- Gen Dynamics- there may be some overall econ trends

this reflects- scale economies

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2. defense: Trends in the industry: incr in demand for plastic = decrease in demand for glass- excess capacity- consolid ≠ devious- people = switching to diff materials- & consolid = for efficiency

3. prob: in long term- incr. compet from diff kinds of materials- but in short term- certain users = still stuck

4. goes back to product market definition- concentration, entry barriers

c. Likelihood of coordinated action- cartel theory-- make the args about how market will be concentrated- don't just say collusion = more or less likely1. ease of reaching terms, policing, punishing2. what will this look like from buyer's side3. defense: difficulties of raising price4. ct = skeptical about collusion being successful- Brown &

Williamson- may never be able to win under §75. a lot of law = about probabilities > certainties6. gov args: collus likely- can just focus on one market where

competition = lessened (ie. baby food jars)a. high entry barrb. highly concentrated (3 player game)c. incentive to self-police- cartel = higher prices for all (but

there's an incentive to cheat if you can get away w/it)d. declining industry = less incentive for new entrye. homogeniety of product- harder to cheat w/product

variations & easier to police7. defense args: collusion ≠ likely

a. oper at less than full capacityb. declining industry- firms may turn against each otherc. move from 2 to 3 player game makes collusion harderd. small cos could expand to undercut price (?able impact)e. entry barriers ≠ highf. supply-side substitutability

i. PROB: no concentr data by segments- but if ss response = elastic, CR4 may be enough

ii. note- you may need more infoiii. prob- you can always ask for more info- sometimes you

just have to work w/what you're giveng. seller-buyer relationships- requirement Ks may make it

difficult to exploit new power- & sophisticated buyers- may be able to put pressure on sellers to keep prices down

h. large area = hard to policei. efficiencies (but ≠ much info on this)

d. unilateral effects- (≠ apply here) (S66)- possib for a single merged firm- w/o colluding with other- could raise price

V. CONDUCT ISSUES

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A. Generally- §1 Sherman Act- 4 ?s to guide analysis1. Is there joint action?

a. §1 forbids contracts, combinations, conspiracies in retraint of tradeb. single firm behav = under §2 NOT §1

2. Characterization- what is it the pties jointly agreed to do (usu. set price)3. Standard of legality

a. Per se unlawful- illegal w/o more- this would = the end of the analysisi. inter-seller price fixing- among competitors- Soconyii. agreements to restrict output- Soconyiii. agreements to divide markets/territory- Topcoiv. ?:is effect the same as agreement on price

b. OR- Rule of Reason4. If RoR- is it reasonable/unreasonable- applying RoR

VI. Horizontal Restraints

A. Appalachian Coals v. US (SCt 1933) (p.341)- 137 coal cos form exclusive sales agency- DoJ brings civil suit to stop plan from going into effect1. joint action- Y- falls under §1

a. open meetings resulted in plan to form AC, Inc.- got 73% producers in the region

b. resonse to Trenton Potteries (p.333)- manufacturers of 82% of all bathroom fictures charged w/price fixing- the upper limit of 80% in AC = a response to this case

2. characterization- establishing price3. standard- reasonableness4. application- ct: this will stabilize prices (industry thinks price = too low)

a. ct= allows this- (context- Great Depression- wells of commerce will go dry p.349)i. ct: no power to raise price

a. there are still alternatives- coal could be shipped inb. low entry barriers

ii. fairness: countervailing power- large sellers & buyers- aim here = fair competitive market- we want AC to be able to compete

iii. efficiency: use of distress coal (p.344), abil to evaluate credit risks b. First- isn't EXIT of firms as a result of failure from falling prices pt of the

essential criteria of competitive markets- ct allows industry to bypass this

B. US v. Socony-Vacuum Oil Co. (SCt 1940) (p.354)- criminal indictment, §1- adoption of PER SE rule1. joint action- Y2. characterization- restricting output to increase prices3. standard- per se unlawful

a. Douglas: "a combination formed for the purpose of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se" (p.358)-- w/o more- no further justif neededi. administrative aspect- fair price today could be unfair later

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ii. price fixing = "threat to the central nervous sytem of the economy" (p.359.n.59)- Doug wants to perserve the pricing mechanisma. pricing = the signal through which supply & demand worksb. prices signal how to allocate resources

iii. US ≠ a centrally planned economy- this is a priv cartel working w/gov officials to reduce output on the market= alien philosophy to Amer (≈ Fascism)- link betw econ org & libertya. Doug: we want free & open markets where people can compete-

Flagstaffiv. AC = distinguished- plan hadn't yet gone into effect

C. eg.:glut of aluminum in Russia, US proposal to shut down plant for 2 yrs1. RoR?

a. AC ≠ technically overruled- maybe it will be revived for times of DISTRESS

b. & econ effects- better ingot, modernization, environ, increase compet in long run

c. stopping at 70% world marketd. public meetings - invite Antitrust divisione. efficiency args in AC

2. per se unlawful? Socony- output restriction agreement comes close to price- is there ever any way to escape thisa. in Socony- Douglas addresses all of the args the ct found appealing in AC

& rejects them- but leaves AC standing (p.356)b. concern- price mech- RoR = against "charter of freedom" (p.356) (this

lang also used in AC)3. AC & Socony are 2 similar cases decided in diff times

D. Arizona v. Maricopa County Medical Society (SCt 1982) (p.367)- civil action v. 1750 competing physicians (70%- after Trention Potteries) trying to form a foundation- motion for partial SJ- setting max fees = per se viol- GRANTED1. Per Se Violation- even assuming price will go down (bec. procedural posture

= SJ)a. Drs getting together to raise prices- max can keep going upb. Attempt to pre-empt gov regulation- & insur cos & drs = worried about

HMOsi. limit price theory may work here- competitors may be attracted to a

market by profits- here, price capii. HMOs need patients for their business- if 70%/Drs = tied to insur cos,

harder for HMOs to attract customers2. REASONS FOR PER SE RULE GENERALLY

a. economic effect- innovation, pricei. gives same rewards- diff prices give incentives for better work &

innovation (≈Socony- we want price to work as a market mechanism)a. ??:is it poss there would be non-price compet if price = fixed- if

prices = low, no extra $ to funnel to other types of competitionii. discourages entry

b. judicial efficiency- decreases cost of litigation- econ effect = anti-compet, ≠ worth sorting through all of the cases

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c. business certainty- businesses know what the rule is before deals = structured

d. roles of judiciary & Congress- Cong passed the law- if people don't like it, Cong should act i. prob: maybe Cong left the law general so ct could decide on a case-by-

case basisii. prob: ≠ easy to get new legislation enacted

e. preserves price as a market mechanism3. Kennedy- was on the Ct/Appeals 9th Cir at the time of this case- now on SCt-

said

E. US v. Topco (SCt 1972) (p.426)- 25 small/med sized supermarkets in 33 states- distrib of private "Topco" label products licensed to supermarkets through territorially restrictive licenses1. joint action2. characterization- horizontal territorial division of markets- (no price fixing-

law is moved forward here)a. members = all on same level of production/distrib processb. this char = central to the case (p.435.n.2)

3. standard- per se unlawfula. Marshall: jud efficiency- cheap & predictable- avoids "rambling through

the wilds of econ theory" (p.432n.10)b. effect of econ prediction- stifles the "Magna Carta" of free enterprise-

when competitors divide up markets they don't compete i. arg: this = pro-compet, allows Topco to competeii. prob: territorial restrictions- the need for priv label just = a

smokescreen for division of markets4. Palmer (SCt 1991) (S102)- reaffirmed Topco = good law- horiz terr restraint

= per se unlawful

F. BMI v. CBS (SCt 1979) (p.380)- ct apporved arrangement under which thousands of ind. artists & other performance rights owners licensed their perf rights through blanket licenses issued by BMI which permitted the licensee to perf anything in BMI's repertoire. BMI monitored #/perfs & paid owners for use1. background of regulation here- non-exclusive licensing = the key2. joint action -Y- all copyright holders who could compete in market for

licensing music have joined these societies- §1 applies3. characterization- price fixing

4. standard- BMI Balance (p.385)- ≠ per se unlawful, ≠ RoR ("the scrutiny occassionally required must not merely subsume the burdensome analysis required under the RoR" p.385.n.33)a. Anti-Competitive Effects: whether the practice facially appears to be one

that would always/almost always restrict competition & decrease output, & in what portion of the market

b. OR INSTEAD Pro-Competitive justifications: one designed to increased economic efficiency and render markets more rather than less competitive

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i. here: integration efficiencies- integration of efforts among copyright holders creates a new product & makes market work/market necessity (p.386)

ii. distinguished from Maricopaa. intellect property caseb. new productc. AC also = a sales agentd. ?:does it matter who sets the price- doctors v. state agency v.

copyright ownersiii. should looking at integration efficiencies help us decide if per se

should apply- modified RoR?- this kills the business certainty of having a per se rule

G. National Society of Professional Engineers (SCt 1978) (p.415)- prohib on competitive bidding- illegal on its face, but Stevens still looks at the affirmative defenses1. ∆'s legal hook- Goldfarb case- min fee schedule by lawyers ≠ allowed, but left

open the possib of RoR analysis for some professions- but Stevens: not here2. RoR ≠ support a defense that compet = unreas here (p.421)3. ≠ clear if this opin = applying a per se, RoR, or balancing test4. NO CARTEL RULE- p.420- you don't run markets by priv cartels

a. Stevens looks at the factors to say we're not looking at it in a trial (cuts off trial)

b. justification that competition = a bad idea (bec. of expenses later from cheap construction, buildings falling down/pub health) ≠ enough

VII. Market Information

A. American Column & Lumber Co. v. US (SCt 1921) (p.483)- 400 mill operators, 1/3 total US output of hardwood, "Open Competition Plan" requiring disclosure of lots of detailed info = condemned by SCt1. joint action- Y2. characterization- no explicit agree to fix prices- just information exchange

a. ct found that effect of reports = limiting production (Socony)3. standard- RoR

a. can we predict anti-comp effectsb. any procomp justifications

4. application- unlawfula. this is a dress up for price fixingb. ≠ how competitors behave (p.488)

5. dissent: this = info that's avail to the public- protects community from extortion & advantages the customers (p.492)a. Brandeis brings econ theory to the courtb. concern = w/protecting the little guy

B. Maple Flooring v. US (SCt 1925) (p.493)- 22 manufacturers, 70%/market- this exchange of info = ok'd by the Ct1. distinguished from Amer Column- no discussion of future prices (as per

lawyer's advice, p.494), info like this = around elsewhere for other industries

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2. standard- RoRa. can we predict anti-comp effectsb. any procomp justificationsc. see DoJ guidelines- coordinated interaction- (S66)- cartel theory- ≠ used

here3. FIRST- both Amer Col & Maple = decided wrong

a. Maple- 70% of market, Amer- 1/3b. Maple- only 22 members- easier to reach agreement than w/Amer- 400

membersi. could still arg 22 = too many to reach a price fixing agreement

c. Maple = providing pieces for price for pricing formula (Av cost + freight + x% profit)

d. Easier to come up with the collusive price w/Maple- less info & less is more

C. US v. Container Corp (SCt 1969) (p.396)- exchange of price info- per se unlawful1. joint action- Y- 90% market- concerted action = enough (p.397)2. characterization- agreement on price3. standard- per se unlawful- even though stabilizes price at dominant level

D. First's e.g.s1. NY Stock Exchange

a. info = known to everyoneb. ≈ to BMI- couldn't function otherwise?- efficiency enhancing- making

market workc. competitive market- lots of players so less danger of collusiond. pro-competitive justif- BMI balance- protects buyers & sellerse. ?no join action

2. Law School Tuitionsa. publically avail infob. no price compet on individ salesc. does competitiveness of market effect the analysisd. homogeneous product?- Containere. nothing about future prices- but this could be inferred

3. Airline- Oligopoly Pricinga. joint action?- any agreement- communication through the NPs- tacit

agreement?b. characteriz: anti/pro competitive?c. Price Leadership (p.440)- behav, no agree = involved- = structural

problem w/oligopoliesi. there's nothing to enjoin here- firms = just following their econ

interestsii. shared monop case- but difficulties of bringing cases under §2

d. cartel theory- paradox of collusion- less info = morei. Amer Column = the least effective cartel- concern = w/the ones we

don't see- but they're harder to proveii. Facilitating devices- industry practices that indicate collusion = going

on- but pure structure ≠ explain uniform pricing

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iii. Justice Dept- prohib pre-announcing fares as of a certain starting/sometimes w/ending date; found: punishment of other airlines- lower fares for a few days on one route as a signal to raise prices- "FU" = code on the ticketsa. cartel theory looks for communication underneath the behav- prob

= when we can't find the communicatione. game theory- pricing as a game among the pties- we could enjoin the

gamef. current theory- looks beyond structure for evid of communciation- beyong

clear proof of agreement- semi-contradictory opinionsi. Interstate Circuit - (p.445) SCt allowed jury to infer agreement- letters

exchanged- even though pties never metii. Theatre Enterprises (p.446) need something beyond parallel behavior

a. Justice Dept's stands = untested legal theoriesb. facilitating devices: common adoption of a delivered pricing

system or freight equalizing practices, common use of price books or pricing formulas, standardization of products, standardization of credit or other terms of sale, most favored nations agreements w/customers or other forms of price protection, exchanges or publication of price & transaction information (p.449-50)

c. four evidentiary elements- need all 41. parallel course2. awareness3. anticompetitive benefit4. action contradictory to the independent self-interest of each

firm, in that a single firm would not have adopted the practice unless it was also adopted by its major rivals

VIII. Boycotts/Joint Refusals to Deal- attempting to coerce another party to do something

A. Fashion Originators' Guild of America v. FTC (SCt 1941) (p.532)≠ under SA directly- under §5FTC Act- unfair method of competition, §3CA- manufacturers (176) refuse to deal w/retailers who buy from the style pirates1. joint action -Y

a. sent shoppersb. audited booksc. red carded bad retailersd. appellate tribunal system- when disputes @ whether designs = registered

2. characterization- boycotta. WHAT'S BAD ABOUT A BOYCOTT- policies of the SA Black points

to (p.534)i. Market foreclosure- narrows outlets/forecloses parties from getting to

the retailers (pirates can't get there)ii. Subjects retailers to boycottsiii. Requires revelation of business affairs/intimate details- freedom of

action issueiv. Suppresses competition from the pirates

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v. Creates an extra-governmental agency regulating interstate commerce (does this add anything)a. many cases at this time looked solely at market foreclosure- ≠ look

at this aspect b. WHAT'S GOOD ABOUT BOYCOTTS- protects intellectual property-

but FTC refuses to hear evidence on this, so ct says this = irrel.- affirm defense = dismissed, so looks like a per se standardi. econ harm- ?:incentive to make new designs if ≠ protected

3. standard: per se unlawful (ct ≠ use these terms, but looks ≈ a per se approach)a. is this a cartel- can FOGA raise prices?

i. has 60% of market of women's garments $10.75 & upii. Black ≠ specifically talk about market power

B. FTC v. Superior Court Trial Lawyers Assoc (SCTLA) (S121)- per se unlawful- §5FTC Act- boycott, then fees raised1. joint action- about 100 lawyers, 85% cases- Y2. characteriz- boycott3. standard- per se unlawful

a. Dist Ct- says you can only regulate a b if you find market power- sounds like RoR

b. SCt- per se unlawful4. ?:is this an Antitrust case at all- SA

a. y-raises price, restraints tradeb. n-no competition- does this case say no strikes?

i. §6/CA -exempts labora. looks for unions

1. Congr has put some labor strikes outside of the Antitrust lawsb. lawyers, as professionals, ≠ qualify for exemption- maybe if they

formed a union?ii. gov=req'd to provide counsel under the 6th Amendment- concern =

min constit oblig, indigents = real consumera. is this legisl creating a market ≈ copyright laws/BMI

iii. market failure here- single buyera. procompet/efficiency enhancing for lawyers to org v. a single

buyer- ≈ Profess Engineers, Ct ≠ consider social justifications5. is case decided correctly?- higher price = reas, but for better product?

a. why should a b be per se unlawfuli. price = at the heart of what per se is about

b. why isn't this a price fixing case- what does the b addi. ct- concerned w/the coercion of the buyer/government

C. NCAA v. Univ. of Oklahoma (SCt 1984) (S138)- CFA tries to break w/NCAA's deal w/ABC- threatens boycott- ct: boycott NOT per se unlawful1. joint action- y2. characterization- threatened boycott3. standard- SCTLA- per se unlawful, here -≠ per se unlawful- RoR- league reqs

coordinated actiona. REASONS THAT ARE NOT SUFFICIENT TO MOVE TO RoR

(p.144)

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i. lack of judicial experienceii. that NCAA=not for profit entityiii. NCAA's historic role in amateur sports

b. REASON TO MOVE TO RoR- Market Necessity (≈BMI, Bork: "[S]ome activities can only be carried out jointly" (S144))

4. applying RoRa. adverse effects

i. restriction on output- effectively raises priceii. exclusive- only one buyeriii. amt universities get ≠ related to consumer preference- they all get the

same amtiv. univs can only sell in accord w/the plan- coercion on CFA members

a. diff fr BMI 1. non-exclusive licenses2. no output restrictions3. & easier to K w/individ schools > individ composers4. we don't know how ct came out on market power issue-

remanded for RoR analysisv. less consumer choice- Aspen Skiingvi. local stations can't buy a game or two-must take a package

b. justifications/+ effectsi. all teams get on TV- may keep prices down, distributes revenuesii. better qual football game

a. competitive balance ≠accepted by cts in Engineers, Dentistsiii. market necessity

5. ct says Market Share = IRRELEVANT as a matter of lawa. absence of proof of market power ≠ justify a naked restraint on price

(S147)i. TV restricts = invalidii. Maricopa - interfering w/mkt forces- another Stevens decisioniii. Stevens dissented in BMI for this reason

b. & as a factual matter, NCAA does have market power- live college football TV- but this = irrelevant

c. Dentists - ≠ need to show market powerd. BMI - we don't know how ct came on on mp issue- remanded for RoR

analysis6. ancillary restraints- Mitchel v. Reynolds- pties were mainly selling the

business, cov not to compete ≠ the main thing the pties were up to7. ?:if prices = going up- why are the SELLERS complaining, not the TV

stations?a. strong teams want out of the cartelb. effect on price = strained

8. Stevens on Per Se v. RoRa. "no bright line separating per se from RoR analysis" (S145.n.26)b. "the RoR can sometimes be applied in the twinkling of an eye"

(S.147.n.39)- market power ≠ an issue, & even if we did consider mp, NCAA has iti. but cf. Topco- ramble through the wilds

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c. pro-competitive justifications may be enough to move from per se to another level of analysis

9. alternatives- right of 1st use10. PROB: need exclusive se- what kind of product are you left with w/o

exclusivity?

D. FTC v. Indiana Federation of Dentists (SCt 1986) (S156)- §5/FTC Act- "unfair mathod of competition"- refusal to submit x-rays to insurance companies1. joint action- Y2. characterization- joint refusal to deal3. standard- RoR (FTC ≠ even look at this as a per se case)4. application- no need to find market power

a. Dentists tampered w/price, & no econ justification for their behaviori. possible justifications for anti-compet behav (S161)- creations of

efficiencies in oper of a market or in the provision of goods & services (BMI, NCAA)a. helps to relate procompetitive reasons to economic reasons

ii. insufficient justificationsa. arg that the market ≠ work ≠ a sufficient justification- Engineers-

you can't trump the marketb. social welfare args don't work- Dentists, Engineers

E. Northwest Wholesale Stationers - (SCt 1985) (S170) expulsion ≠ per se unlawful- remands for RoR analysis1. cooperative buying assoc has integrative efficiencies- can buy at a lower

price- pro-competitive justification on its face = RoR > per se analysis2. & no anti-compet reasons offered here

F. Statute to think about- National Cooperative Research Act (1984)- Amend in 1993 (& Production) (S165-8)1. signed by Clinton- expanding a relaxation of Antitrust

a. in some areas, integrational efforts might be usefulb. & single > treble damages

2. notion behind this- US firms falling behind bec ≠ able to cooperate

IX. Vertical Restraints/Vertical Price Fixing & Resale Price Maintenance

A. Dr. Miles (1911)- early decision- indicated that RPM = viol of SA- against pub pol

B. Fair Trade Legisl- from 1937-1975- Miller-Tidings Act- legalized retail price fixing at state's option, but was repealed

C. Since 1975- RPM= subj to SA/§1 analysis1. ≈ issues as horiz cases2. look at how distrib setting changes results/analysis

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3. court gives a lot of weight to the horiz/vertical distinction as a tool to distinguish all other cases

D. US v. Parke, Davis (SCt 1960) (p.603)- PD ≠ deal w/cos that wouldn't abide by their min prices1. PD- tries to rely on Colgate (1919)- no viol of §1 if action = unilateral (≠ by

agreement)- "in absence of any purpose to create or maintain a monopoly . . .[seller] may announce in advance the circumstances under which he will refuse to sell" (p.606)

2. PD- makes it easier for the π- affirmative steps to reach a deal = joint actiona. "if a manuf is unwilling to rely on individ self-interest . . . and takes

affirm action to achieve uniform adherence . . . acquiesence is not then a matter of individ free choice" (p.612)

b. "don't take a step" can be a hard test3. PD model- ct structure the rule this way

a. in context of Fair trade legislation- to protect smaller retailers fromb. chain storesc. & PD = a dealer carteld. (anti-competitive story)

E. Monsanto (SCt 1984) (S175)- complaint followed by termination ≠ enough for joint action- more diff for π- this ≠ enough to go to the jury1. LEGAL TEST NOW: "evid that tends to exclude the possib that the manuf

and the nonterminated distributors were acting independently" (S179)a. Requires "conscious commitment to a common scheme" (S179)b. Requires a meeting of the minds- "distributor communicated . . . and that

this was SOUGHT by the manufacturer" (S179.n.9)2. on facts in Monsanto- there was enough (S179-80)

a. price-cutting distribs = approached & reported if ≠ assentb. instructed to complyc. newsletter- reas to interp this as ref to understanding @ maintaining prices

3. ct- trying to revive Colgate- sees possib legit reasons for man/distrib to work together- (S178)

4. affirms per se rule for price restraints

F. Albrecht v. Herald (SCt 1968) (p.617)- A overcharged, H terminated A- max. price fixing1. White's FN: if A agrees & sues- A can bring suit as of the day he unwillingly

complied (p.619.n.6)2. stand: PER SE UNLAWFUL- reasons (p.621)

a. substitutes H's view for A'si. dealer should have freedom to decide what will serve the retail market

the bestb. may be a bad price- too low for dealerc. may channel distrib to advantaged dealersd. ceiling of today may be floor tomorrow

i. worried about probs of distinguishing between floors & ceilingsii. Maricopa - ceilings per se unlawful in horiz agreement

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e. PROB: A has a monopoly in this geogr area- H = just trying to keep A from raising pricei. but A's monop power = of H's own making

3. ***gov was prepared to arg for RoR (p.177)- ≠ argued bec. Congress passed an Appropriations bill FORBIDDING the gov to make this arg in court!a. shows there's pressure on the per se rule for RPM

4. in Matsushita- (S184)- ct read Monsanto to req. a restrictive view of what a jury could find w/regard to agreement- concern w/competition/compet policy

5. Harlan's dissent: ceilings = in M's interest > D's interest- Ms want lower prices at retail so people buy the papera. this shouldn't be per se unlawfulb. ceilings should be treated differently than floors- ceilings = imposed by M

for M's self-interestc. floors & ceilings are diff & we can tell the diff

G. Continental v. Sylvania (SCt 1977) (p.639)- location clauses- no exclusivity1. standard of legality- RoR- explicitly over-rules Schwinn

a. Schwinn - precident- said vert non-price restraints = per se unlawful- customor/location restraints, post-sale restraints (p.643)

b. per se rule = stays for price restraints2. application

a. how can this be pro-competitive?: even though C = out of the game in San Fran & Sacramento (less intrabrand competition- S v. S), more interbrand competition counterbalances this (S v. Zenith) (p.647-48, n.19 on 647) (but see- PNB)i. retailer gets more profit; more services post & pre sale

a. won't competitive markets provide this- why do we need a restraint on competition

b. ct worried about free-riders- market imperfection (p.649)- Chicago school view1. consumer interest- in the long term- full service places will

shut down (idea in Sylvania)2. BUT- look at NY electronics stores- markets can support

BOTH full service & discount stores- restraint on competit ≠ necessary

3. FIRST- this ends competit on both price & serviceii. manufacturers can achieve cert efficiencies in distribution (p.648) iii. joint interest of manuf/retailer in efficiencies (≈ Monsanto)

3. rule of reasona. + for full service retailersb. ? for consumers

i. deprived of optionsa. there are service industries that provide info- info ≠ have to be

provided by retailers (ie. Consumer Reports)ii. paying a higher price when they were happy paying the lower priceiii. consumer preferences change

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iv. consumers want to by brand names at a discount, but brand names get pretige by not being discounted

c. manufacturer- hopes that moving from bare bones to a plush system will shift the demand schedule- if demand curve shifts, M will be happyi. more shift = less interbr competitionii. with interbrand competition- demand enhancement may not workiii. if demand curve = flat- retailers wont be able to raise price to P2iv. shift- assumes that consumer welfare = enhancedv. cost of retailing = a cost of the product- manuf has to be concerned-

retail costs effect demnd for producta. incentives to economize in the distrib process so can compete

w/other brands, serve own manuf interests4. ?:protecting the brand name5. in Topco- distinction between inter & intra brand competition ≠ accepted, but

Topco was a HORIZONTAL case6. distinctions here

a. horiz v. verticalb. price v. non price restraints

i. non-price restraints have a similar EFFECT as RPM (subj to per se rule), but SCt sees a distinctiona. non-price = indirect way to increase price (by requiring certain

distrib)b. direct way- would be RPM- per se unlawful

ii. White- concur- ≠ see distinct betw price/non-price (Chicago school)

H. Business Electronics v. Sharp (SCt 1988) (S184)- suggested min retail prices- SCt- no explicit agree on price so RoR1. joint action?- Hartwell & Sharp- under Monsanto- complaint followed by

termination ≠ enough- maybe we shouldn't even be in court here!2. to show price fixing- show agree on price/price level- (lots of weight given to

horiz/vert distinct as a way to disting all other cases)- ct goes w/RoR herea. ct=concerned w/giving manufacturer abil to control the distrib process-

less skeptical about the distrib restraint- this is after Sylvaniai. manuf has incentive to act efficientlyii. ct≠ want to unduly interfere w/this

b. Diff fr. horizontal cases- strict line on price fixing but all distinguished (agree between competitors)i. Socony - agree to restrict output ≠ agree on price/price level- but ct

distinguishes this bec it's a horizontal case, also General Motorsii. no price fixing case says you have to agree on price/price level-

Catalano- no agree on price but per se unlawful- still horizontaliii. dissent in Sharp- effects = horiz, this should be per se unlawful

c. Sharp - vertical case (agree between manuf & retailer)3. boycott/refusal to deal

a. horizontal cases: per se unlawful- GM, Coors

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4. RPM COULD be per se unlawful IF: (Sharp narrows reasons for finding vert price restraintsa. explicit agreement on price/price level- facilitates CARTELS- dealers

cartel/retail cartel = horiz price fixing = per se unlawfulb. manufacturer's cartel- to facil collusion among manufs- per se unlawful

i. RPM facilitates collusion becausea. there is no benefit to undercut/charge less to the retailer- retailer

would keep the excess $b. if the retail price went down, we'd know the manuf was cheating

I. What would a RoR inquiry look like1. Net tradeoffs- inter v. intrabrand competition

a. anti: reduces intrabr compet; pro: vertical intergr, manuf incentives to be efficient, pre/post sale service

2. Look at the market- has the firm imposing restraints restrained compet in marketa. look at market powerb. abil to raise pricesc. NCAA , Dentists- ?d need to look at mket power in RoR analysis

3. ≠ charted because after Sylvania- most litig = in discouter termination areaa. πs cast cases as per se unreas price restraints- stayed away from RoR bec

harder to win

J. Important distinctions- but how viable are they1. horizontal/vertical

a. Sharp - distinct = critical in move to RoR- fact that manuf imposed restraint made case vertical- is this how we should judge?

b. Topco - per se rule stands- horiz2. price/non-price

a. Sharp - vert price restr still = per se unlawfulb. Sylvania - vert non-price- RoRc. but- both price & non-price restraints have the same econ effect- so why

make the distinction- unstable area- (purpose of np restraints = to raise price- there are ways to incr price w/o RPM)

d. Scalia- price restraints facilitate collusione. Minolta - (signing an agree that resale price for camera will be $350)-

only w/price will we have per se illegality f. Freedom from vertical price fixing Act (S202): Congress pressure to over-

rule Monsanto- & make RPM per se unlawful (accept complaint followed by termination as per se unlawful)- proposed a statute that never passed

g. some enforcement here- consent judgments3. minimum price fixing/maximum price fixing- poss distinction, but cts have

rejected it- today, both = unlawfula. Maricopa - horiz max = per se unlawfulb. Albrecht - vert max = per se unlawful

i. White:P.620.n.7: reasons for Min price fixa. when total demand ≠ incr much by lower price

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b. when total demand effected less by price than by # outlet, avail of services, or impact of ads/promos

c. mitigates danger to all manufs of severe interbr price competc. Atlantic Richfield (S203)- indep gasoline distrib setting max prices

i. ct: assuming Albrecht is decided correctly- vert max price fixing = per se unlawful (S.204.n.5)

ii. defense of vert max price fixing (S.207.n.13)- protect consumers v. exploitation fr local monop, manuf incentive for efficient distrib = procompet interbrand effects even though per se illegal

X. Tying & Exclusive Dealing

A. Covered by:1. §1/SA- if there's agreement, falls under §12. §3/CA- RoR- passed to tighten up SA standards- more likely to find illegality

a. only applies to COMMODITIESb. effect: substant lessen compet, tend to create a monop

B. Exclusive Dealing- you must buy C only from me (may be a req'mts K)1. Standard Oil Co. v. US (SCt 1949) (p.670)- large enough share of market

foreclosed by ed agree to = illegal under §3a. Ct sees econ distinct bet ed/t- efficiency reasons for ed

i. firm outlet for goodsii. firm source of supplyiii. economics of distrib

b. BUT- Congr has treated them the same, so we'll treat them the samec. ct: looks at share of the market foreclosed- structural test

2. Tampa Electric (SCt 1961) (p.681)- 20 yr ed K, ct looks at the market & says this = oka. more relaxed view about ed- looks at market share foreclosed, econ

impact, efficiency justification- essentially a ROR analysisb. ed- less important than tying as an Antitrust concern

C. Tying- if you want A (tying product), must take B (tied product)1. Fortner v. US Steel (Fortner I) (SCt 1969) (p.702)- loans (2 million) & homes

(689,000)- US Steel provides $ is excess of amt to build home- 100% financing of land & homes- claim = under §1/SA (§3/CA=easier to prove, but money ≠ a commodity)a. Fort: homes = $400 more expensive than other homes, & homes =

defective & unusualb. Black: TYING = PER SE UNLAWFUL, but π might also be able to use

RoR if ≠ meet the prereqs for tying- SJ for US Steel = inappropi. ct=now more willing to grant SJ against πs- Matsushita)

c. Three Reqs for per se illegal tie:i. sufficient econ power in tying product mkt to enable seller to impose

tieii. amt of interstate commerce effected is ≠ insubstantial (≠ hard to show)iii. two products

a. prob: may be hard to distinguish

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1. Jefferson Parish - O'C: lens & cameras = "clear" eg of 1 productb. here- 2 products- loans = in excess of homes

1. even though you can't just take the money, US Steel is lending addt'l money

2. vs. Barney's lay-away- ≠ giving you more money than it costs to pay for the suit

iv. (assumed): conditional sale- b may have WANTED sale in a certain way

d. Bad things about tying- leveraging market power from A to effect compet in B marketi. Lessens competition on the merits in B marketii. Aversely effects other producers of B productsiii. Raises entry barriers to B market- may not have to sell A&Biv. Market foreclosure- other sellers of B can't get to Fortner, & Fortner

can't get to other sellers of B

2. Hypos- winkle seller & salta. if products ≠ related- tie -= effectly raises price- will sell less bec you're

trying to get > the monop profits- this = self-deterring, corrected by market

b. if sell both together at compet pricei. share of market foreclosed (w/salt/commodity- very small share of

market)- if monop = our sole concern, maybe there's no prob here- do a monop analysisa. if it's really a §2 case- seller may not be in viol of super skill,

foresight, industryii. effects consumer choice (cars/radio eg)

a. RoR analysis- harder 1. share of market foreclosed2. entry barriers3. what's reas- even though consumer choice is down, will pay

more & thorw radio awayiii. effects compet in the B market

c. hypo 4- req purchase of all salt at higher price from the winkle selleri. enforcement probii. but- tie here could increase consumer welfare- some people who

wouldn't have bought the winkle at monop price will now buy- output expandinga. consumer surplus- for people who spend > $10- goes to wink sellerb. some = better & some worse offc. may be good to allow tying in these arrangementsd. if tie measures intensity of use- seller can satisfy diff demand

intensities along the curve- allows seller to get single monop price for each individ1. this may be only reason ties = imposed2. & efficiency

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3. IBM/punchcards- charges those willing to pay more more $4. paradox- effect of market foreclosure- output expansion v. less

consumer choice3. Jefferson Parish (S212) (SCt 1984) (anesthesiologists)- ct: this ≠ anticompet-

can go to diff hospitalsa. Stevens- condemns tying arrangements- concern = consumer choice

i. forcing someone who may have made a diff consumer choice (S215)ii. market power

a. also in Fortner II- price discrim in typing indicates there's market power we don't want to tolerate

b. O'Connor- concur- RoR inquiry- concern = market poweri. econ/mkt power to enforce the tieii. concern = w/tied product market

a. competitive conditions in other marketb. market foreclosure

iii. these inquiries = threshold- then: iv. efficiency reasons for imposing tie

4. Eastman Kodak v. Image Technical Services (SCt 1992) (S225)- proced posture- SJ- SCt lets case go to the jury- says π has some legit counter-args (parts & service)a. Blackmun- case-by-case- look at the facts (S229)

i. this is a CHANGE- maybe econ theory shouldn't rise as high as does in post-Sylvania period- look at factual case

ii. Matsushita - made SJ easier for ∆ (does π's arg make econ sense- if not- SJ)

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